1. What division offers offer integrated services.
2. What divisions structured to offer full range of products including treasury
3. What division increased expertise in trust services and advanced fp.
PIC, Private Wealth Mgmt, Full Service Brokerage
- 1. Private Wealth Mgmt
- 2. Full Services
- 3. PIC
What occupational group make up the HNW client segment?
- Professional Service
- Media and
- Sports Pros.
What are the 3 main areas of CRM 1
- 1. Disclosure of the relationship
- 2. Enhanced Suitability
- 3. Management of Disclosure of any conflict of interest.
What is the most significant protection implemented by CRM2
Increased transparency and disclosure of fees
Who regulates banks
Banks are federally regulated by gov't of Canada under the bank act.
In the WME risk is defined as
Volatility of returns and measured by standard deviation
Define Asset Location
Decision to put specific assets in specific accounts (taxable to non-reg) and tax deferred to (rrsp)
What two factors must be considered when determining the appropriate SAA for clients?
- 1. Investment Objectives
- 2. Market Expectations
Name the four financial ratios (LOVR)
- 1. Liquidity
- 2. Operating Performace
- 3. Value
- 4. Risk Analysis
Which category does inventory turnover ration fall under?
Using age approach how do you determine how much equity to purchase a client?
- 100 minus age = % of equity
- Example 20 year old person
- 100 - 20 = 80% should be in equity
Define two approaches to rebalancing and define them?
1. Calendar rebalance - rebalance at intervals such as semi annual, annual or every 6 months
2. Weight Based - Actual asset mix strays from SAA by a certain percentage will trigger a rebalance.
Name the Ratio Category that the following fall under:
- Liquidity (L)
- Operating Performance (O)
- Value (V)
- Risk Analysis (R)
1. Current Ratio
2. Return of Capital
3. Dividend Yield
4. Debt to total assets or Debt Capacity
5. Quick Ratio
6. Net Income Margin
7. Return of Equity
8. Earnings per Share
9. Interest Coverage / Debt Coverage
- 1. Liquidity
- 2. Operating Performance
- 3. Value
- 4. Risk Analysis
- 5. Liquidity
- 6. Operating Performance
- 7. Operating Performance
- 8. Value
- 9. Risk Analysis.
If the current market value is below the intrinsic value. The stock is ______ and you want to _____ and if the instrinsic value is above the stock is considered __________ and you want to _____
Under valued (BUY)
Over valued (Sell)
How much can you borrow under the Home Buyers Plan?
How long do you have to repay the HBP?
When do payments need to begin for HBP?
- 15 years
- Second calendar year from when withdrawal was made. Withdrawn in 2020, repayment begins in 2022
How long/many years must pass before you can participate in the HBP program again
To qualify for HBP what 2 things must occur?
1. Household income must be less than $120,000
2. Mortgage and Incentive can't be 4x annual income. Example a couple that earns $100,000 in income can't exceed $400,000 from HBP
How much does a person need for a down payment under FTHBI?
What is the annual income threshold for a marginal tax rate of 50%
If a person uses a vehicle for work and receives compensation. What are the the two threshold to be considered a taxable benefit and must be reported on taxes.
- $0.58 on the first 5000 km
- $0.52 on the next 5000 km
For the Canada Child Benefit, a personal with a net income of ___________ qualifies for the max benefit. What amounts will you receive?
Less than $31,120 will receive $6639 per child under 6 and $5602 per child 6 - 17
What is the Lifetime Capital Gain exemption and when can a person use it?
Used to shelter a certain capital gain during disposition of farming, fishing and shares of small business (CCPC)
To be eligibile for Lifetime Capital gain exemption - what criteria must be met?
Owned for 24 months ( 2 years) prior to sale and/or 50% of corporate assets must be used in an active business
What is the donation tax credit on a regular donor?
- Up to 75% of the net income to qualify for a federal credit of
- 15% on the first $200 then
- 29% on the balance
What is the donation ta credit on a HNW client?
33% for income earned over $210,371
What is the max contribution limit for TFSA in 2019 and 2020?
- 2019 - $63,500
- 2020 - $69,500
What is the max 2019 and 2020 rrsp contribution
- 2019 - $27, 230
- 2020 - $27,830
What is the amount applied (deducted) for YBE?
If a person earns income over, then OAS is clawbacked?
What amount is clawbacked on OAS once a person earns over $77,580
15% or 15 cents for every dollar earned over $77,580
OAS is fully clawbacked once you earn an income of _______?
What are the 4 stages of concern and the age range in a client's life cycle/stage?
- 1. Approaching retirement (Age 50 - 62)
- 2. Early Retirement (63 - 67)
- 3. Fully Retired (68 - 75)
- 4. Late Stage Retirement (76 +)
Can HBP be repaid to a spousal RRSP?
CAn HBP be repaid to your own RRSP at Bank A if withdrawn from Bank B?
For 2020 what amount is the Defined Benefit Pension Max Benefit?
$3000 per year of service
IPP permit higher tax deductible contribution than those allowed under RRSP. Due to the fees involved IPP is generally appropriate for salaries greater than_________.
Similiar to IPP - RCA are appropriate for clients that are (Name two)?
1. Owners of Private Corp or Executives with salaries higher than $151, 278
What percentage does each employee contribute to CPP?
What percentage does self employed pay to CPP?
What are the 4 tests to determine if you have a right vs wrong situation?
- 1. Legal Test - Is this legal
- 2. Smell Test - Does it smell or feel funny
- 3. Front Page Test - How will it look on front page of news
- 4. MOM test - would you tell your mom
- (Right vs Wrong)
What a 3 diligence components and 4 associated requirements from KYC rules?
- 1. Identify and Creditworthiness
- --> Each member must learn facts related to all clients, accounts and trades
- 2. Business Conduct
- --> Ensure good orders accepted and within bounds of good business
- 3. Suitability
- --> Ensure each order is suitable
IIROC CRM rule requires the following information be reviewed every time there is a triggering event. Name the triggering events.
- 1. Trade
- 2. Recommendation is made
- 3. Securities are deposited
- 4. Change in account Manager
- 5. Material changes to account
What is it called when an advisor has the ability to enter trades on behalf of a client without the client having direct contact with the person on the other side.
Law of Agency
Define Conflict of Interest
Occurs when a duty owed to one party conflicts with a duty owed to another party
In Quebec "agency" is called ______?
Name 5 registered code of ethics and standard of conducts
- 1 Exercise good care
- 2. Act w integrity, fairness and honesty
- 3. Conduct professional and keep consistent updated with knowledge
- 4. Act in accordance with securites act
- 5. Maintain complete confidence of client info
Define standard deviation
Higher the SD, the _________ the security?
Extent to which year over year returns vary from avg or expected return.
Define liquidity and the amount recommended for risk adverse clients vs not risk adverse?
- Refers to amount of cash and cash equivalent
- Wealthy risk tolerant clients should have 5% in cash
- Risk adverse clients should have 10% in cash
What are 3 reasons a client would need liquidity and how much liquidity is recommended?
- 1. Ongoing Income Needs
- 2. Emergencies
- 3. Anticipated Big Purchases
Recommend 3-6 months LIVING EXPENSES
Define Asset Location?
Percentage of the portfolio to be held in different asset classes
Name the recommended max of asset classes a client should have
4 - 6
What 4 regulatory info do you need to collect during the discovery process?
- 1. Goals
- 2. Financial Info
- 3. Objectives
- 4. Investment Constraints
Define required return vs required objectives?
Required return = required to meet client objective (is it reasonable)
Required Objective = how much of the client portfolio is expected to earn each year
Name 3 ways the return objective can be defined?
- 1. Inflation - Adjusted Basis
- 2. After Tax Basis
- 3. After TAx Inflation Adjusted Basis
Define Home Bias?
Avoid buying foreign investment.
Name 4 key tips regarding cashflow?
- 1. Cashflow exceeds outflow - positive
- 2. Convert cashflow items to same time frame (monthly)
- 3. Include expenses
- 4. PAC contribution are cah flow
How do you calculate money weighted return?
- Ending value of portfolio minus Starting Value the subtract the deposits and add back the withdrawals divided by Starting value plus deposits.
- Example: Portfolio of 200K is now worth $250K, client deposited $5k and again $3k. Later that year withdrew $1000. What is the weighted return:
- $250K minus $200K minus $5k minus $3K plus $1k divided by $200K plus $5K plus $3k
What is considered the foundation of a financial plan?
Projected cashflow statements
What is recommended for emergency fund?
3 - 6 months of LIVING expense (not income)
Define affordability and name 2 ratios used to determine affordability?
Gross Debt Ration and Total Debt Services Ratio
Name 4 financial issues a client will identify during "Bridging the financial discovery"
- 1. Accumulating Wealth
- 2. Protecting Wealth
- 3. Converting Wealth to Income
- 4. Transferring Wealth to Heirs
Define discretionary expenses vs fixed?
- Discretionary is food, vacation clothes and
- Fixed is mortgage, rent, car payment
Is low risk tolerance considered an investment constraint?
No it is an objective
What 2 retirement planning variables are beyond a clients controljQuery112407352342174756128_1615346325654
- 1. Amount of savings they have in place
- 2. Inflation rate prior or during retirement
Define Net Worth
- Assets minus liabilities or
- assets exceed liabilities
Define net cash flow?
cash inflow minus cash outflows
Pledge of ownership of real property as security for a loan
Define real property?
Any right interest benefit in land which includes mines minerals and improvements.
Right of use and enjoyment for a specific period of time o a property is owned by someone else
Right to enjoy another property for a period of time and take revenue from the land such as crops
Change placed on a immovable property in favour of another immovable property that belongs to some else. Allow a gas line.
Define Emphyteusis or Leasehold?
Granting of the right for one person to enjoy immovable property (land) that is owned by another person
Name the 5 C's of Credit?
Primary mortgage market is defined as what?
Refers to the primary retail source of the mortgage - example someone applies for a mortgage.
Banks are regulated by ___________ and compliance is monitored by the federal ____________?
Bank Act --> Office of the SuperIndendant (OSFI)
What is it called when the bank act restricts banks from lending 80% of a property appraised value?
Loan to Value
pool or block of residential mortgages that have been grouped securitized or grouped together and sold to private investor
Define Accessory Real Right
- Rights provided by a link attaching the claim directly to the property.
- Lender placing a lien
The purchase of a home is __________?
Primary Real Right
Right to encumber a property with a ______ is an accessory real right?
Most mortgages have an acceleration clause. What does that mean?
If payment is missed, the lender has the right to make the entire mortgage immediately due
Define Municipal Taxation
Municipalities tax real property in all jurisdictions
Define Eminent Domain
Gov't have he power to use property for public use with compensation to the owner
an acquired right to use another's real estate for such use as road access or placement of hydro
What is freehold interest in land?
is an interest in land for an indefinite period of time that confers to full benefits of ownership
What is leasehold
Property held under tenure of a lease, right to use and occupancy of real property
What is Condo Interest
multi unit structure or property in which persons hold fee simple title too
How can you determine if you have a right vs right dilemma
- 1. Truth vs Loyalty
- 2. Individual vs Group
- 3. Short Term vs Long Term
- 4. Justice vs Mercy
Define Ends Based Ethical Thinking
Great good for greater people
Define rule based ethical thinking
Create suitable rules for others to follow in similar situations
Define social contract based ethical thinking
Create harmonious relationships
What is personalistic based ethical thinking
Create a situation that is authentic to who you are
Define truth vs loyalty or (Dilemma is Integrity)
Best friend cheats on wife who is a friend.
Tell wife or stand by your friend
Define Individual vs Group (Dilemma is Goal BAsed)
Proposal to increase fee on a product that will lower cost for your clients but increase fees for your largest and loyal client
Define Justice vs Mercy (Dilemma is Fairness)
New employee works so hard but made a mistake for grounds for dismissal. Keep him or fire him.
What is moral standard?
Based on reason and can't be changed by law or regulation
What are 3 examples of values
- 1. Values are beliefs not facts
- 2. Values are long lasting
- 3. Values provide guidance of ones behaviors
What are right vs right and then right vs wrong
- Right vs Right
- Truth vs Loyalty
- Individual vs Group
- Justice vs Mercy
- Right vs WrongOne is illegal
- One decision lacks truth
- Negative consequence outweighs positive
- Decision doesn' conform to society widely shared and understood values
What are 3 ethical principals?
- 1. Standards that guide a particular group
- 2. Set of morals or values
- 3. Study of morality or moral choice
Define unified value
System in which a mean value and end value mutual reinforce each other (unify)
Name 2 types of ethical dilemma?
- Right vs Wrong
- Right vs Right
Personal goals are influenced by means values and ends value - Define each
- Means Value: What you need to do today to reach your future goals. Action you take today.
- Example. Deter romantic relationship so you can work 80+ hours a week
- Ends Value: Where you see your life heading in the future. How we act today.
- Example..Become wealthy by the age of 40.
Trust is establish in an advisor if these 3 things are present
- 1. Specialized Knowledge
- 2. Well Regulated Industry
- 3. Client first approach
Client willingness to trust an advisor should have what 3 elements in the relationship
- 1. Disclosure of Information
- 2. Influence over decision
- 3. Share of Control
What is the wealth management process
- 1. Understanding the client
- 2. Formulating the plan
- 3. Formalizing and implementing the plan
- 4. Review, Rebalance and Reporting
What is the definition of ethics?
A set of consistent values that guide individuals behavior
Name some traditional attributes or soft sklls possess by advisors
- 1. Trust
- 2. Honest and Ethical
- 3. Good communication
- 4. Motivated, Entreprenuial
Name some emerging attributes and most important of advisors
- 1. Evolve to stay relevant
- 2. Coach/Educate clients to achieve self fulfillment
- 3. Organize and manage a team of professionals
Securities Dealers are regulated _________?
Name the 4 professional competency?
- 1. Build and manage client relationships
- 2. Evaluate client needs and goals
- 3. Coordinate when required trusted team of experts
- 4. Use custom marketing strategies to build platform
What two reports must firms provide annually to clients as part of CRM2
Performance Report and Fee reports
Bank owned firms or trustee services are regulated by__________?
Credit unions and Caisse Populairs are regulated __________?
Insurance Companies are regulated by?
Federal Gov't under Insurance Companies Act
TRust and loan companies are regulated by ________?
Both provincial and federal
Mutual Funds are regulated by?
MFDA or in Quebec its AMF
What % does a self employed person must contribute to CPP?
10.20% - 5.10% as employee and 5.10% as employer
Name the 3 business models
- Fully Integrated (Comprehensive)
- Semi Integrated (Limited)
- Mono-Line (Single set of services)
What are the key trends shaping the future of wealth management?
- 1. Aging clients
- 2. Increased Competition
- 3. Advances in Technology
Define the demographics of investors and when they were born?
- Millenials 81 - 2000
- Gen-x - 66 - 80
- Baby Boomer - 46 - 65
- Silent Gen - 25 - 45
Define 3 competitive factors for advisors?
- 1. Competition between channels
- 2. Competition in mass markets
- 3. Competition in pricing
Form of digital currency that is encrypted
Name 6 Cdn Stock Markets
- 1. TSX
- 2. TSX Venture
- 3. TSX Alpha Change
- 4. Cdn Secuities Exchange
- 5. Neo
- 6. Nasdaq
Global Industry Classification standard is broken down in 11 sectors. Name as many as possible
- Consumer Discretionary
- Consumer Staples
- Communication Services
- Real EState
What criteria does a client need to meet to be considered a HNW client?
$1,000,000 in investable assets
Name 3 wealth management channels?
- Private Wealth Mgmt (PWM)
- Full Services (FSB)
- Private INvestment Councel (PIC)
Define FATCA and what do they do?
Foreign Account Tax Compliance Act. Enacted in 2010 by USA to reduce tax evasion
Definate Personal Information Protection Electronic Documents Act (PEPEDA)
Governs how personal information is collected, used and disclosed. Prevent, detect money laundering and terrorist financing.
Is self actualization at the bottom or the top of Abraham Maslow hierarchy of needs pyramid?
What is CSA and what do they do?
Canadian Securities Administrators - protects investors from unfair, improper or fraudulent practices and foster fair and efficient capital markets
Of the major organization groups which 2 are the fastest growing segments?
Entrepreneurs and Retirees
What is the self regulation organization for the sale of mutual funds
Investor Economics (within CSI) "white paper" details nine competencies that make a wealth advisor successful, these competencies can be divided into what two domains?
Technical and Professional
What is the self regulatory SRO for dealers that trade debt and equity issues in CAnada?
What does the PIPEDA govern
Personal Information and Electronic Documents and governs how personal information is collected, used and disclosed.
Pioneered by Fintech Companies, what type of advisors help clients create their own customer investment portfolio using online services
As a min - how often should a portfolio be reviewed.
Annually unless there is a material change.
What is the name of the act to reduce tax evasion in the USA
There are 3 competitive forces in the wealth mgmt industry. One force is competition between channels. Can you name the other 2?
- Competition between channels
- Competition in mass markets
- Competitive pricing and press to reduce fees
What is the primary disclosure doc for mutual funds?
Fund fact sheet
Is FATCA designed to reduce tax evasion on account held inside USA or outside
Does crytocurrency allow for more secure or less secure electronic transactions
more security because its encrypted
What are the 3 main business models or delivery channels dedicated to serve the HNW segment of the market
- Private Wealth Mgmt (PWM)
- Full Service (FSB)
- Private Investment Counsel (PIC)
Who created the hierarch of needs pyramid
What two reports were introduced by CRM2
Fee statements and performance
In what way did CRM2 impact a mutual fund requirement to provide investors with a fund fact document
CRM1 required delivery of fund fact sheet after the sale of a mutual fund however CRM2 required it before the sale.
What does the acronym PCMLTFA stand for?
Proceeds of Crime (Money Laundering) and Terrorist Financing Act
The 3 main business models or delivery channels dedicated to the high net worth segment are private wealth professional, full services brokerage and PIC. Which one offers full integrated services suh aas private banking, investment counseling and trust services
Private Wealth Managment
What was the purpose of CRM2
Are insurance companies federally or provincially regulated
Federally - by Gov't of Canada under the insurance company act
Are banks regulated provincially or federally
Banks are federal
Trust and Loan Companies regulated Federally or Provincially
Robo Advisors are attractive to what 5 types of client attributes?
- Younger (not close to retirement)
- Comfortable w Technology
- Comfortable w Self Directed
- Less Complex Needs
- Fee Conscious
In Canada what % of HNW are either led by baby boomers or people of an older age
2 out of every 3 HNW households
What are the 4 proper order of the steps in the wealth management process
- Understanding the client
- Formulate the plan
- Implement the plan
- Reporting, Review and Rebalancing
What gives an advisor the ability to enter trades on behalf of a client without contact with the person on the other side of the transaction
Law of agency
What is rules based ethical thinking?
If followed, create suitable rules for others in the world to follow.
What are the four test to help determine if an issue is right vs wrong?
- Smell test
- Mom test
- Front Page Test
- Legal Test
How would you define agency relationships
Agency is defined as a relationship in which one party (agent) is authorized to bring another party (principle) into a contractual relationship with a 3rd party.
What are 3 elements that need to be present for trust based relationship to develop between advisor and their clients
- 1. Specialized Knowledge
- 2. Belongs to an industry well regulated
- 3. Places the interest of the client ahead of their own
What is ends based ethical thinking
If followed would result in the greatest good for greatest number of people
What is social contract based ethical thinking?
If followed, creates harmonious relationships
With a unified value system, what two things reinforce or unify each other?
When a means value and end value mutually reinforce each other
What is arguably the most significant risk to the financial industry
What is personalistic based ethical thinking
If followed it would create a situation that is authentic to who you are?
How is principle based thinking different from rules based.
Principle Based - rather than being subjected to rules industry participants are required to apply judgement and discretion
What two qualities does an advisor need to possess for a trust relationship to develop
When does fiduciary duty typically exist?
Relationship where one person holds a position of trust.
For business code of ethics to be effective, what 4 items are required
- Code must be supported by senior mgmt
- Employees must participate - buy in
- Reviewed periodically and updated
- Implemented with training and be reinforced.
There are 4 main right vs right dilemmas. Name them...
- Truth vs Loyalty
- Individual vs Group
- Short Term vs Long Term
- Justice vs Mercy
What POA is commonly used in the financial industry
How can ethics be broadly defined?
Set of consistent values that guide behavior
What are means value and ends values
Means value - what you to today to reach future goals. Action taken.
Ends - Where do you see life headed in the future. Influence how we act.
What is ethical dilemma
When two or more possible choices will pit value against each other
What is Quebec term for agency
With a right vs wrong dilemma, at least one of which 4 things is usually present
- One is illegal
- One decision lacks truth
- Negative results outweigh positive
- One does not conform to society widely shared and understood values
What are some characteristics of values
- Values are beliefs no facts
- Values are long lasting
- Values provide guidance on behaviors and goals
What are 3 main reasons clients require liquidity in their portfolios
- Ongoing Income Needs
- Anticipated significant purchases
Once the appropriate risk tolerance is determined, the risk objectives must be clearly stated. What are 3 ways this can be stated?
- 1. Stating desired asset mix
- 2. Determine the appropriate standard deviation
- 3. State of the maximum negative return the client will tolerate in a give year
Unique circumstances are specific to each client. Can you provide 2 examples
Buy ethical (not tobacco) or "sin stocks". Referred to as ethical or socially responsible
Don't invest in companies inhume or in child labour
Determine an individual risk tolerance involves assessing what two things?
Willingness and ability to assume risk
If __________ is greater than _____________ than a higher risk will be tolerated
ability is greater than willingness
Determine which investment should be placed in a registered account vs non-registered is referred to as what?
Do liquidity requirements represent actual cash needs, potential cash needs or both
What are 3 distinct phases to the wealth mgmt approach to client discovery
- Set the stage and build rapport
- Conduct emotional discovery
- Bridging to Financial
Liquidity refers to the amount of cash and equivalent that is required in a portfolio. What portion of the portfolio should typically be held in cash.
5% or 10% in risk adverse clients
How did the CSA change the rules pertaining to discount brokerages and KYC rules?
Deciding what % of a portoflio should be held in various asset classes is __________?
What is the difference between required return and objective return?
Required return - estimated avg. annual return required to meet the client goals
Objective return - measure of how much the client's portfolio is expected to earn each year.
What is the difference between mortgagee and mortgagor
- Mortgagee is the lender
- Mortgagor is the borrower
What test asses the mortgagor ability to withstand higher payment should interest rates be higher upon renewal
What represents the least risk to a lender - personal loan or revolving credit facilty?
Affordability is determined by which two debt services ratios
Which of the 5 C's of credit may put a lenders mind at ease when a borrower is filing for bankruptcy
Which of the 5 C's of credit refers to the trust worthiness of a borrow to pay debt
What 5c of credit defines teh ability for a person to pay down debt
What two major variables determine how much a mortgage lender will lend
Market Value and the Ability to Repay
What is a rough guideline for an appropriate emergency fund?
3 - 6 month of living expenses
What are some reasons to implement net worth planning
- Establish Financial Discipline
- Meet Future Target
- Measure Progress
- Feel secure about the future
What are the 5 C's of credit
What are 4 savings strategies that can help individuals get started building upon what they are already doing?>
- 1. Set realistic goals
- 2. Set up automatic savings plan
- 3. Resist buying on credit
- 4. Reward yourself
What is retail credit card
Credit card fro big box stores like Cdn Tire
How is cash flow calculated
Cash Inflows minus Cash Outflows
From a wealthy mgmt perspective what is a primary reason for cash mgmt
To help clients determine if their rate of savings is enough to achieve their financials goals
Does net worth statement reflect a specific date or a period of time
What 3 factors does TDS ratio factor in
- Principal + Interest + Property Taxes + Heat
- Gross Annual Income
How do you calculate the percentage that should be used for credit card payment calc?
3% of the outstanding balance
What is a conveyance of an interest in land as security for debt referred to as?
In a mortgage agreement - what is an acceleration clause
If a payment is missed the lender has the right to make the entire mortgage immediately due.
Does the stress test apply when a mortgage is being renewed with the same lending institution
What type of mortgage allows a homeowner aged 55 or older to access the equity in his home tax free without having to sell or make payments
Reverse mortgage - 55/55 rule (age 55)
With foreclosure if there are any remaining funds does the money belong to the homeowner or the lender
With tenancy in common ownership which 4 unities must be present?
Who does mortgage insurance protect?
What are the max allowable GDS and TDS ratios?
GDS = 32% and TDS = 40%
Would a high risk mortgage loan be funded in the primary or secondary market
What is the definition of portfolio?
Risk - Volatility of returns within a portfolio
Volatility of returns is defined using a measure called _________?
Perfect diversification is achieved hen stocks are correlated how?
Perfect Negatively Correlated.
2019 budget proposed changes to HBP to assist thru divorce. What criteria must be met to qualify under the scenerio
Lived apart 90 days and not living with a new spouse or common law.
With a CMHC insured mortgage - CAD gov't essentially ensures the loan to value will be repaid if the borrower defaults. Who pays the premium for this coverage.
When may a lender use an automated value (AVM) mgmt tool for loan appraisals?
When LTV is 95% below and no usual characteristics about the home.
What gives the gov't the right to take an individual land for public use.
What is Quebec term for mortgage
When it comes to real estate ownership, what are the 4 unties
With a condo corp is the unit owners lender entitled to vote at a condo meeting
What is the max LTV allowed for a non-insured mortgage
80% for non insured.
In terms of compounding how does federal interest act require the interest to be calculated on a mortgage.
What is the break point where a mortgage loan becomes a high ratio mortgage
Under what circumstances would a "blend and extend" be suitable for a mortgage borrower?
Take advantage of attractive rates
How does the course define mortgage back securities
Pool of residential mortgages that have been securitized and sold to institutional investors
How does the income stream on a fixed rate bond compare to a fixed mortgage or mortgaged backed securities
Unlike bonds, income received by MBS varies because mortgages provided borrower with pre payment options
With tenant in fee simple ownership what does the word simple refer to?
Define real property
Real Property - Any right in land which includes mines, minerals and improvement on above or below
What are 2 ways the penalty can be cacl. if paying off a closed mortgage prior to maturity
3 months interest or interest rate differential
What options does the borrower have in terms of paying CMHC
Lump sum or added to the mortgage
In Quebec, what is the term for lease?
What are some of the legal remedies a lender can employ if the borrower is in default on a mortgage loan?
- Power of Sale
- Take Possession
What is an estoppel certificate
Document issued by a condo corp that gives potential purchasers info about a specific condo
What is difference between open mortgage and closed mortgage
Open mortgage - Borrower can make extra payments and even pay in full
Closed mortgage - Can't prepay or pay mortgage in full
What does the Quebec term usufruct refer to?
Right to use and enjoy for a specific period of time of a property owned by someone else
What is a portable mortgage?
Buyer purchasing new home, lender will let him "port" or move existing mortgage to new property
What are the income restrictions to qualify for the first time HBP incentive program (FTHBI)
The act of taking real property by the gov't is known as?
What system of land registration is also known as Torrens System
Land Titles System
What 3 variables does the TDS factor in?
- Principle + Interest + Property Taxes + Heating + Other Debt (or credit card)
- Gross Annual Income
Hydro Co. having the right to come to property to read meter, lay pipes is know at what?
Which is the most efficient system of registration? Registry or Land Titles?
What things are required for a domestic contract to be enforceable?
- 1. Be in writing
- 2. Signed by both parties
- 3. Witnessed
What is a sole custody order?
One parent has legal decision making responsibility
What does cohabitation agreement primarily deal with?
Issues expected to arise if the relationship breaks down
A domestic contract can be overturned if it deemed to be an unconscionable transaction. What constitutes unconscionable.
It would have to "shock the conscience of the court"
What is the legal definition of marriage under the federal civil marriage act?
The lawful union of two persons to the exclusion of all others.
In Ontario, what are 3 common contracts
- 1. Marriage
- 2. Cohabitation
- 3. Seperation
What is a seperate regime of property?
All property whether acquired prior or during the relationship and any increased value are owned strictly to title
In Ontario, divorce couple seek care of children - which act will apply?
The federal civil marriage act has 3 requirements for those who wish to marry. Can you name them?
- 1. Minimum age of 16
- 2. Consent - both understand and free to consent
- 3. Previous marriage is annulled or divorced
Domestic contracts are considered legal contracts. In order for a valid and enforceable contact to exist under common law, what 5 pre-requistics must be present?
- 1. Valid offer and acceptance
- 2. Legally competent
- 3. Mutual consideration
- 4. Genuine Intention
- 5. Lawful object of the contract
What is the purpose of ILA?
Independent Legal Advice - to ensure you're not opting out of marriage legislation put in place to protect them
What is corollary issue?
Secondary issue that needs to be resolved prior to resolving the main issue.
What constitutes shared parenting?
When each parent has child in car for 40% of the time.
___________ describes the relationship or sensitivity between the return on a security and the market return is other words systematic risk
Studies suggest that as few as _______ stocks can essentially fully diversify an equity portfolio by removing all unsystematic risk
15 - 20 stocks
Systematic risk - essentially _______- can't be diversified away.
Define diversification for WME
combining securities that are less than perfectly positively correlated in order to lower the portfolio overall standard deviation without giving up any of the portfolio return
Define sovereign risk?
Involves the chance of losing money as a result of political forces in a foreign nation
Creating a portfolio without considering how the individual securities perform in relationship to one another is known as _____________
What procedure did Markowitz develop meaning to consider how closely the returns of each stock is related?
Mean Variance Optimization
How long will CRA consider a sufficient time frame to settle an estate
36 months or 3 years
Name the 3 components to an asset allocation
- 1. Strategic Asset Allocation
- 2. Rebalancing Strategy
- 3. Tactical Asset Allocation
What are the 3 main asset classes
- Cash and Cash Equiv
- Fixed Income
In 1952 what theory did Henry Markowitz follow?
Developed mathematical definition of portfolio risk
Created a procedure to identify the composition of the portfolio that optimized trade off between risk and return that must be made.
Written document that contains the guidelines and rules by which to operate a clients account.
Name two most common passive strategies
- Indexing (S&P500)
- Buy and Hold
In 1964 what theory did William Sharpe develope?
- Developed capital asset pricing model (CAPM)
- - market portfolio is a weighted average portfolio of all possible assets
- -expected return on a portfolio is linearly related to the portfolio risk in relation to the risk of the market
Define the difference between strategic asset allocation, rebalancing strategy and tactical asset allocation
- SAA - Set portfolio long term asset allocation
- Rebalance - Up and Down plus accumulated div will cause SAA to drift and will need to be rebalanced
- Tactical AA - shift portfolio towards a strategy. If bonds expected to perform better than equities then rebalance towards bonds until strategy accomplished
Pass away without having a will.
Define passing of the accounts
Compensation to settle an estate is determined by the courts
Under common law it's assumed that a trust is __________ unless stated otherwise in the trust documents.
What section of the Income Tax Act is for estate freeze
What 4 returns may need to be prepared upon death
- Rights or Things
Define Term Certain or Fixed Annuity
The term is certain - payment period is exact and known in advance
Define straight life annuity
Pays an income until the annuitant death
Define joint life annuity
Pays an income until the joint annuitant death
Name 3 types of maturity guarantees
- Deposit Based Guarantee
- Yearly Policy Base
- Policy Based Guarantee
Name the 3 parties in an annuity contract
- 1. Insurer
- 2. Policy Holder
- 3. Annuitant
Define minimum capital and surplus requirements (MCSR)
OSFI establishes that insurers of annuity have set aside enough funds to cover guarantees
What is assuri?
Non-Profit organization that provides a level of protection if an insurer becomes insolvent or unable to make promised annuity payments
LRSP are governed by __________ legislation and LIRA are governed ______?
Federally and provincially
What is this years basic exemption amount (YBE)
Name the 4 main types of annuities?
- 1. Term certain annuities
- 2. Straight Life Annuities
- 3. Joint Life Annities
- 4. Deferred Annuties
What is the calc for min RRIF payment for
70 yrs or less
71 - 94
- 70 yrs of less = min amount equals the market value at beginning of the calendar year divided by # of years left until 90
- 71-94 = a percentage that increases each year until it becomes fixed at 20% once the hold reaches 95
- 95+ - value of RRIF X 20%
Defined contribution pension plans are also known as?
Money purchase plans
What two types of Defined Benefit Pension Plans (DBP) are easily integrated with CPP?
- Career Average
- Final Average Plan
Name the 2 calculations used for Defined Benefit Formula to determine the lesser amount a retiree will receive from an employer
- 2% average earns x 35 (# of years employed)
- $2000 x # of years employed
What is the impact of IPP on RRSP contribution room?
Once IPP is established the max amount that can be contributed to an RRSP is $600
DBP maximum pension benefit for 2020 has changed to ___ of the money purchase plan
How do calc for pension adjustment contributions made via dcp vs dbp
DCP - equals total contribution made by you and employers If $7000 was made in total in 2019 contribution of $26,30 - $7000
DBP - Pension adjustment = (9X benefit) - $600
Name 5 non qualified investments in an RRSP
- Precious Jewels, ems and Stones
- Shares and Debt Obligations
- Real Estate
- Personal and Listed Property - Art and Antiques
- Commodity and Future Contracts
Under the lifelong learning plan (LLP) you can borrow _______ from your RRSP to finance education
How long must a person hold a LSVCC to keep the tax credit
What is the maximum lifetime contribution amount for RESP vs RDSP and the lifetime maximum grant? Again for Canada Disability Savings Bond?
- RESP - $50,000 - $7200 grant
- RDSP - 200,000 - $7000 grant
- CDSB - $20,000 lifetime grant
What is the max contribution age for RESP vs RDSP? AND Max length the plan can be open?
- RESP = 17 yrs age to contribute
- RDSP = 49 yrs age to contribut
- RESP = close by 31st anniversary
- RDSP - close by age 59
To avoid attribution, disposition must be done at __________ and loans must be at or above ___________.
- Fair Market Value
- Prescribed Rate
CRA allows the transfer of certain non refundable tax credits from the lower income earning spouse to the higher income earning spouse. Name the 4 non-refundable tax credits?
- Age Credit
- Tuition Credit
- Pension Credit
- Disability Credit
Name 5 listed personal property that could be used to offset gains?
- Rare Books
What are the 3 requirements for those who wish to marry under the federal civil marriage act?
- Minimum age = 16
- Both parties consent
- Previous marriage legally dissolved
What is another term for common law spouse?
In Ontario what 3 forms of relations constitutes a spouse under family law?
- 1. Married Couple
- 2. Unmarried Spouse living together for 3 years plus
- 3. Unmarried couple that have a child together
Define reverse mortgage
Reverse mortgage allows a homeowner 55 years or older to access equity in their home tax free without selling and can be up to 55% of the appraised value.
What is another name for reverse mortgage
Home Equity Conversion Mortgage
The main issuer of reverse mortgage in Canada is _________?
Canadian Home Income Plan (CHIP)
Name 6 credit management strategies
- 1. Pay down high interest debt
- 2. Pay down or convert non tax deductible debt
- 3. Consolidate date
- 4. Shorten repayment period on a loan
- 5. Maintain creditworthiness
- 6. Ensure benefit of debt outweigh the cost
What is the refinancing limit / guidelines?
Gov't lending guideline allows one to refinance up to 80% of the appraised value with a max amortization period of 30 years.
What are two options available if a seller sells hoe with an outstanding mortgage
Portability - lender often port or move the existing mortgage over to the new property
Assumption - buyer assumes or take over existing mortgage
What are the 4 steps of the pre-qualification process for a mortgage
- 1. Assess the present financial situation - assets - liabilities
- 2. Calc the down payment
- 3. Calc the monthly mortgage payment
- 4. Calc the GDS & TDS
Define estoppel certificate
Document issued by a condo corp that gives potential purchaser info about the specific unit and the condo corp
Clients will have various closing costs for closing a mortgage. Transaction fees usually amount to _________ of the purchase price.
2 - 5 %
Name 4 fees associated with purchasing a home?
- 1. CMHC Insurance
- 2. Appraisal and Inspection
- 3. Tax and Land Development
- 4. Professional Fees (Legal FEes)
Not in advance interest payments do what for the borrower?
Not in advance reduces the total cost for the borrower
Semi Annual compounding do what for the borrrower
Semi annual compounding increases the total interest cost for the borrower
What is the maximum % GDS and the max total TDS ratio allowed to be approved
How do you determine credit card payment used in TDS formula
3% of credit card limit
Name the 6 key financial factors to be considered when purchasing a home
- Mortgage Stress Test
- Interest Rates
- Loan to Value
- Fees associated w mortgage
- Term and Amortization
- Debt Service Ratio
How is loan to value calculated
Loan amount divided by Home Value
(exactly how it sounds loan / home value)
When would lenders use power of sale over foreclosure?
When outstanding principle and interest is less than the FMV.
Name the recourse lenders have in Quebec if borrower defaults and it is the equivalent power of sale or foreclosure
- 1. Sale by Judicial Authority (same as power of sale)
- 2. Taking in payment (same as foreclosure)
Name the 3 types of land registration (Title) Systems
- 1. Torrens or Land Titles
- 2. Registry Systems
- 3. Quebec Hypothec Systems
Name and define the 2 main legal recourse for lenders when a borrower defaults on payment of home
- Power of Sale - allows lender to force the sale of property without taking title to it provided the borrower receives lots of notice
- Foreclosure - lender sues borrower for the title of the property in exchange for the amount owed.
An interest in land by which the full benefits of ownership are conferred for a indefinite period of time
Multi Unit Structure in which individual hold fee simple title to a specific unit
refers to an individual having the right to use certain property for a certain period of time
For joint tenancy - What Unities criteria must be met?
- All four of them
For joint tenancy in common - what one unity criteria must be met?
Define superficies ownership?
Superficies refer to the division of ownership of construction or works situated on a immovable property
Example. River owned by a gov't but a dam built on river is owned by an electrical company.
Define Tenancy in common
Ownership structure involves two or more owners who own land together upon death of the owner then deceased ownership transfers to heir, not the other owner
Define Joint Tenancy
Ownership is two or more and upon death, the deceased share transfers to surviving owner
The purchase of a home is a _____________ and the right to encumber a property with a __________ is a ________?
- Primary Real Right
- Accessory Real Right
Name 3 methods of owning land?
- Tenant in fee simple
- Tenant in Common
- Joint Tenancy
Define tenant in fee simple
Land that is held absolutely and forever by a person or his heirs unless sold.
The sole ground for granting a divorce is that there has been a breakdown of the marriage. A breakdown can only be established if the following two things occur?
Spouse lived separate and apart for at least one year
Spouse commits adultery or abusive
Under the divorce act a lawyer must do what 2 things
Discuss potential of reconciling with one spouse
Provide info for marriage counseling
Define corollary issue
Corollary issue is a secondary issue that needs to be resolved as part of or prior to resolving main issue.
Example - before divorce agreement determine custody of children
At what point can divorcees remarry?
When a divorce certificate is received
For unmarried parents, the relevant legislation regarding children is ______?
Children Law Reform Act
Define parens patriae?
Allows the court to make or revise any separation agreement and to intervene to protect child's rights.
What organization can be used and requested by court order to conduct a social work investigation and write a report regarding where they believe is the child best interest
Office of children lawyer (OCL)
What is a domestic contract and what two things make up the contact?
- PreNuptial Agreement
- 1. Each party rights and obligations during the relationship and in the event of a breakdown
- 2. Opt out of most traditional marriage legislation
For a domestic contact to be enforceable it must be ________
What are the 3 formalities to make a domestic contract enforceable?
- 1. In writing
- 2. Signed by both parties
- 3. Witnessed
A court may dismiss a domestic contract for the following 3 reasons:
- 1. Failure for one or both parties to provide full financial disclosure
- 2. Failure for one or both parties to receive proper legal advice
- 3. Existence of undue, influence such as coercion, fraud or duress
Define strategic wealth preservation
Focus on retaining full range of opportunities that a clients personal resources allow him to enjoy
Define human capital
Economic or total value of an individual knowledge, skill and experience. It's the present value of the money an individual will earn in the future.
What is one word to describe the objective of wealth management
What 2 attributes are required for a financial goal to be considered a useful target?
- 1. Must have monetary value
- 2. Must have a target date
There are two characterization of risk - name them?
Pure Risk - risk which there is only a possibility of loss or no loss but no possibility of a gain. Example risk of your car being stolen or risk of house burning down
Speculative Risk - Possibility of a loss or a gain. Example REturn on an investment
Name the difference between objective risk and subjective risk?
Objective Risk - Not influenced by personal feelings or opinion and represents facts
Subjective risk - Based or influenced by personal feelings or opinions
Name the 4 primary objective measures of risk
- 1. Standard Deviation
- 2. Shortfall Risk
- 3. Pure Risk
- 4. Time Diversification
Standard deviation is also used to create the "efficient frontier". Define efficient frontier
Plots the portfolio with the best potential return for a given level of risk
Systematic risk is also known as ___________ or ___________?
Market risk or undiversifiable risk
Unsystematic risk is also known as ______ or _______
Non-Market Risk or Diversifiable Risk
What does monte carlo measure?
Measures shortfall risk
Name 5 steps in the personal risk management process?
- 1. Identify the risk
- 2. Evaluate the risk
- 3. Control the risk
- 4. Finance the management of risk
- 5. Monitor and Revise the risk management plan
What are the 3 ways of tax planning strategies
- 1. Eliminating taxes - TFSA contributions
- 2. Reducing taxes - Income split
- 3. Deferring taxes - RRSP contributions
Name the 5 information slips and when are they issued?
- T3 - Int. Div. Capital GAins on mutual funds
- T4 Employment Income
- T4a - Income from pension plans, annuities or RESP
- T5 - Investment income
- T5008 - List the amount received from sale of securities
What are 4 main deductions allowed when calc net income
- 1. RRSP contributions
- 2. Pension Contributions
- 3. Child care Expenses
- 4. Union Dues
Name some available tax credits
- Donation tax credit
- Investment in LSVCC
Name the way the 4 investment income are treated for tax purposes
- Interest and Foreign Dividends - Marginal tax rate
- CAD Dividends - Gross Up by 38% and div tax credit
- Capital Gains - Inclusion rate 50% taxed and other 50% not taxed
- Return of Capital - Not taxable but lowers the ACB
CAD Dividends are grossed up by ________% and the tax credit is _________%
38% and tax credit is 15.02%
Define stock option
Allows the employee to buy shares at a discount from the current market value. Taxable benefit is the difference between the exercise price and the FMV
Define a unconscionable transaction and give an example?
Contract can be overturned as unconscionable because it was a shock to the court.
Example - A stay at home mom agreed to give working spouse all of the assets
Name an alternative process to resolve family law issue if you want to avoid unfriendly court of law
Alternative Dispute Resolution (ADR) - more family friendly and less expensive
In Ontario what are the 3 main domestic contracts
- 1. Cohabitation agreement
- 2. Marriage contract
- 3. Separation Agreement
What 3 things do a separation agreement deal with?
- Ownership and division of property
- Custody and child support
- Future spousal support (alimony)
What 4 reasons could a domestic contract - prenup be challenged
- Signed under duress
- Contains a material mutual mistake
- Grossly unfair to one party
Define separate regime of property
All property, whether acquired prior to or during the relationship, any corresponding increase in value are owned strictly to title
What conditions must be met for a prenup to include a waiver of spousal support
Neither spouse depends on the other for financial support and no children are involved
What 3 ways can you make a transfer within the attribution rules?
- 1. Direct transfer of funds (gift)
- 2. A loan
- 3. Transfer of property (sale of assets)
What does related parties mean for attribution rules?
Related party is a tax payer that is a spouse or minor children
If the other party is not related to the tax payer in any way then this is known as a __________ transfer
For attribution rules:
Type of transfer - Gift
To Spouse - int, div, are attributed back to spouse. capital gains are also attributed back
To Minor Kids - int, div are attributed back to parent but capital gains stay with child
To Adult Child - No attribution
Margin Tax Rate
0-$45k - 15% tax rate
$45k-$90K - 21% tax rate
$90K-$145K - 26% tax rate
$145k-$200K - 29% tax rate
$200K+ - 33%
How do you calculate weighted average tax
- Total tax paid
- Total Income